What is a key requirement for insurable interest in an insurance policy?

A key requirement for insurable interest in an insurance policy is that it must exist at the time of application. Insurable interest refers to the legal and financial stake that the policyholder has in the insured item or person, ensuring they would suffer a loss if the insured event occurs. This requirement is essential because it prevents insurance from being used as a gambling tool—only individuals or entities who would incur a financial loss can take out insurance on a subject.

Having insurable interest at the time of application provides a foundation for the risk assessment that insurers perform. It reflects the policyholder's genuine interest in protecting their assets or loved ones, therefore reinforcing the contractual nature of the insurance agreement. Without this requirement, insurance policies could be exploited, encouraging individuals to take insurance on items or individuals they do not care about, which would undermine the principles of insurance contracts.

Insurable interest does not need to be present at the time of payout, claim, or after the policy expires, as these stages involve different considerations and do not influence the validity of the contract at its initiation.